Tuesday’s Trading
I’m thinking that today should be like Friday: a narrow-range day that consolidates yesterday’s decline.
Watch the comments section for updates.
I’m thinking that today should be like Friday: a narrow-range day that consolidates yesterday’s decline.
Watch the comments section for updates.
July 29th, 2008 at 8:57 am
With the buck rallying sharply today I will be very surprised if stocks do not folow
July 29th, 2008 at 9:25 am
The market is looking pretty green. Dollar up, oil& gold down, bad news = good news (merril).
July 29th, 2008 at 9:34 am
I just bought some GLD puts (GLDTM). I got in at $1.95.
July 29th, 2008 at 9:39 am
I just bought some POT puts (PYPTW). I got in at $10.40.
July 29th, 2008 at 9:44 am
I just bought some XLE puts (XBTTU). I got in at $2.50.
The XLE has a bear-flag on its daily chart that looks like it is about to take another leg down.
July 29th, 2008 at 9:48 am
KOL has opened up on a gap, however the volume is very light - less than half of yesterday morning’s volume. So, today is likely to be another pop-and-flop day.
July 29th, 2008 at 9:55 am
The puts that I bought above were targeted to specific situations. Notice that I am not shorting any of the major indexes.
July 29th, 2008 at 10:09 am
Crimson Ghost,
Nice call on the dollar.
Matt
July 29th, 2008 at 10:11 am
Matt, nice call on oil. Are we breaking through?
July 29th, 2008 at 10:11 am
Since markets head down faster than up, I’ve thought about pairing puts such as short xle and short xlf.
July 29th, 2008 at 10:30 am
SPY is making a bull-flag pattern, and should be able to move higher, though it is still dependent upon oil. USO has the opposite pattern on its chart: a bear flag, and will probably move lower.
July 29th, 2008 at 10:41 am
Right now oil is in free fall. It may be oversold, but who wants to step in front of that at the rate it’s falling? Shorts were crushed by oil on the way up, even when it was overbought.
Eventually, stocks will head back down and oil back up. I really don’t see the market getting past Thursday’s economic news, unless the “bad-news-but-better-than-expected” cheerleaders work overtime.
Gold, oil, and the dollar all continuing strong moves; goodcall, guys.
July 29th, 2008 at 11:15 am
Just checking the markets. Why is the dollar rocking today?
July 29th, 2008 at 11:22 am
USO caught a strong bounce and froze SPY in its tracks. However, the tape is very strong and stocks could have another leg up in the afternoon, perhaps after oil settles.
July 29th, 2008 at 11:23 am
Larry, Crash,
On Sunday I wrote that July might be marking the switch from inflation to deflation. As of now, the prices of everything are falling, and the dollar is rallying.
That’s pretty much what a deflationary contraction looks like, right?
Matt
July 29th, 2008 at 11:26 am
POT is red during the big rally this morning, and looking very weak.
July 29th, 2008 at 11:42 am
Yes Matt. That’s a deflationary contraction. Or the other side of the credit boom as explained by the Austrian School
Industrial output growth in India was 5% YoY in April-May versus 11% in same period last year. People will be shocked when they see the August-September figure. I bet it will be zero or negative.
July 29th, 2008 at 11:46 am
XLF looks to have an intraday target of $20.70 and that will put in a potential right shoulder on the hourly for a H&S.
July 29th, 2008 at 12:14 pm
Matt, what are your thoughts on POT right here? its at its day’s low but looks very weak……it looks like the next stop is lower.
July 29th, 2008 at 12:15 pm
I think that the strength in the dollar is (in this case) a false positive (long term) for the markets.
USD up will hurt the exports by decreasing the demand and also the foreign sale margins (they are paid in foreign currencies), which is where the business strength is coming from.
In the US, the consumer is king. $120 oil will still crush the consumer when combined with falling houses and contracting credit. Oil between $70-100 ($3/gal gas) is needed to boost consumer spending. This is what is needed for the US economy to improve.
July 29th, 2008 at 12:18 pm
Matt,
Are you getting rid of your GLD puts at $900 (GLD=$90)?
Just curious.
Paul
July 29th, 2008 at 12:54 pm
Larry, thanks for the report on India.
Zen, I see what you mean about XLF.
Tony G, I think POT will take out the support at $188 in the next few days.
Paul, I think GLD will take out $90 during this move, but I have a large gain on my puts, so I may take profits later in the day.
KOL has popped and flopped just like I thought it would. I now have a 19% gain since I bought the puts yesterday.
Matt
July 29th, 2008 at 12:56 pm
So far, plunging oil has not helped the stock market much. Both are down for the month so far.
July 29th, 2008 at 12:58 pm
anybody read Brian Shannon’s book, Technical Analysis Using Multiple Timeframes? good/bad?
July 29th, 2008 at 1:06 pm
UNG (natural gas fund) now up for the day even as USO sinks further.
Does this portend a reversal in oil as well?
July 29th, 2008 at 1:08 pm
I am on board with the deflation call, just not sure of the timing. Dollar strength is proof of it. We will see if it lasts.
Rich,
Where are you? I would like to see your outlook right now. So far you have been right on, matching the technical analysis I have been following.
July 29th, 2008 at 1:42 pm
Tony,
I ordered that book yesterday to try it out. Funny you should mention it!
July 29th, 2008 at 2:03 pm
The dollar (UUP) is pushing up against the top of its downtrend channel, which has been resistance for almost a year now. Anybody think it can break through?
July 29th, 2008 at 2:48 pm
The tape has weakened badly since the peak at 1:30pm, and SPY is overbought on the hourly chart. I’m thinking about buying a few puts, though maybe it was the L.A. earthquake that just jolted the market.
July 29th, 2008 at 3:09 pm
I think it was the quake and the oil spike. However, the spike was quickly knocked down before the close, good news for (stock market) bulls.
The VIX is back where it ended on Friday. I am curious on whether the SPY will end on an upward ramp or just muddle through.
BTW, is there anyone that thinks deflation/stronger dollar could help the US, on balance? I sure don’t.
July 29th, 2008 at 3:10 pm
I just pulled the trigger on a medium-sized number of SPY puts (SPYTU). I think this move is just about played out.
July 29th, 2008 at 3:15 pm
Paul,
The market celebrates a little bit when oil falls, but only because traders don’t appreciate what dis-inflation really means. It won’t be long before people realize that falling commodities are the result of a nasty recession.
Matt
July 29th, 2008 at 3:28 pm
SPY is trying to recapture $126 now. It is short-term overbought and $126 should prove strong resistance, so I think this is a good level to short against. Though I should have waited until the end of the day to buy my puts since the tape has been so strong.
July 29th, 2008 at 3:28 pm
Matt, 1260 (SPX) has momentarily stopped the advance. If it breaks up through this level, I assume you would see this as significant, yes?
July 29th, 2008 at 3:48 pm
I just doubled-down on my SPY puts.
July 29th, 2008 at 3:49 pm
Hi Timer,
1260 has been crossed and re-crossed many times. If the market were not overbought here, I would regard a breakout as much more significant.
Matt
July 29th, 2008 at 4:00 pm
Today wasn’t my best day of trading, however I am holding all of my put positions, and may get even shorter in the futures tonight after I study some more.
The market is acting as if the jobs report on Friday has been canceled. I say, good luck with that…
July 29th, 2008 at 4:16 pm
The VIX dropped 9.3%, which is an overbought sign. I think that the S&P will at least test 1255 again tomorrow.
Here’s something to keep an eye on: GOOG traded like a dead dog today. +1.3% for this high beta beast? Still below $500?! On low volume??!! Bear pennant forming!!!! Can’t be good news for the Qs… AAPL also lagged the Qs
July 29th, 2008 at 4:17 pm
Hey Matt what do you think about XLF right here? The intraday charts seem overbought but the daily could be turning. Just curious as to your thoughts.
The hourly looks like a H&S.
July 29th, 2008 at 4:58 pm
Paul,
I see the GOOG bear-pennant now. Nice. Apple is also solidly below its recent downtrend line. The Q’s picked up a bit of volume today, but it was still below average. This was no barn-burner.
Matt
July 29th, 2008 at 5:17 pm
Zen,
SPY has the same patterns as XLF. The intra-day chart has the head-and-shoulders pattern and is overbought, which is why I went short SPY.
The daily charts for SPY and XLF now have an uptrend line, which I have drawn from the July 15th low to yesterday’s low. I would say that the daily pattern is now a symmetrical triangle, or a weak-looking ascending triangle.
A few days ago, I mentioned that the Q’s have an ascending triangle on the daily chart. SPY and XLF now have the same pattern. The reason why I describe it as weak is because I have the upper trendline for the Q’s drawn at $46, and they haven’t been able to get up there for four days now. If the Q’s can’t push higher tomorrow, I might “downgrade” the pattern to a symmetrical triangle.
So yes, the daily charts are trying to shape up, but it is still touch-and-go.
I think the daily charts will breakdown. I don’t think the market is at the point yet where it can ignore job losses. In addition to the BLS report, we now know that the weekly unemployment-claims report has the power to knock the market down. So, that will be instilling fear on a weekly basis for some time to come.
Matt
July 29th, 2008 at 5:57 pm
Very little time to post today.
My contribution for the day: SPX 1262-63 to 1269-70 is ST resistance, which sets up a test of weekly-close support at 1168-79 with a stop in the ~1200s-20s along the way, IF 1245-47 is broken to the downside.
Alternatively, a breakout above 1270 (28 DEMA) implies a possible C-wave (???) rally to the 1370s-80s, stopping at the 1300s en route.
SPX 1257-60 is weekly-close resistance, whereas 1280 is monthly-close resistance for Thursday’s close.
BKX 66-68 is ST resistance, which, if held, projects the upper 40s; a breakout above 67-68 projects 95-100, which is certainly possible with the gov’t and Fed bailing with both hands, but not yet probable. Today’s close at the 50 DMAs might have been the extent of the rally.
I would expect the long stocks-short oil (and vice versa) trade to fade increasingly hereafter, as the global recession worsens into late summer and year end, and as the down phase of the 9- to 11-yr. commodities cycle bears down into ‘09-’10 or ‘11.
The gov’t employment data at this pt. in the business cycle are notoriously worthless and more so today due to the Millennial cohort being dramatically smaller as a share of the total labor force than were their Boomer predecessors, contributing to a much slower growth of the labor force than in the early to late ’70s. With Boomers leaving the full-time, regular labor force en masse (voluntarily and otherwise) over the next 2 decades, the structural “official” U rate will “appear” to be much lower than the “effective” rate.
The labor market in the yrs. ahead will be particularly unforgiving for workers 30 and under and those 50-55 and over (see the experience of 1930s in the US and Japan in the ’90s-’00s).
More later in the week, FWIW . . .
July 29th, 2008 at 8:53 pm
Japan industrial output growth went negative in June. -3% if I remember right. Someone is adjusting to lower demand for capital goods.
July 29th, 2008 at 10:05 pm
Japan industrial output down 2% m-o-m. More than expected. I am not sure what it was y-o-y, but think it was down 3%.
India tightened credit again yesterday. Reserve Bank hiked repo rate 50 basis points to 9.0%. Cash Reserve Ratio was increased again to 9%.
I am not sure we should call it deflation, as that term will be misunderstood by people who want to misunderstand it.
A worldwide credit crunch is maybe better? It is getting tight out there.
July 29th, 2008 at 11:16 pm
Hi Larry,
Yes, maybe a word like “dis-inflation” would be better.
Matt
July 30th, 2008 at 12:16 am
Deflation, dis-inflation, credit-crunch, tightening. It’s all here. It’s the other side of the money/credit bubble.
I am just saying (as I believe you are too) that the U.S. Federal Reserve will not allow falling prices, tight liquidity and high interest rates in the commercial market. Unfortunately.
But we’re still many months (hopefully years) away from Bernanke’s helicopter going into real action. If we’re lucky this recession lasts another 12 months without panic inflation from the FED.
July 30th, 2008 at 12:47 am
The Fed didn’t deliver even a token rate cut during the banking panic on July 15th. So, it looks like they will try to hold the line for awhile, even in the face of a plunging stock market and failing banks. I’m not so sure how they will react to soaring unemployment though.